Could WSF Follow the Course That BC Ferries Charted?

Passengers unload from the Queen of Burnaby, a BC Ferry that crosses the Straight of Georgia between Little River on Vancouver Island and Powell River on the Sunshine Coast. Built in 1965, it can carry 192 cars and more than 900 people. BC Ferries, which operates 1,000 miles’ worth of ferry routes, became a heavily-regulated private company in 2003.
(JOSH FARLEY | KITSAP SUN)

VICTORIA, B.C. - British Columbia's fast ferries, by all accounts, were a disaster.

The province built three catamaran-style vessels in the late 1990s, hoping to shorten crossings between Vancouver Island and the mainland. Construction, however, was wrought with cost overruns and delays. And when they did sail, they put out too big a wake, guzzled fuel, were uncomfortable for riders and took too long to load, negating the purpose of building them.

With the state facing another $3 billion budget shortfall, Gov. Chris Gregoire has vowed to study what privatization of the ferries would look like. She said Wednesday that she has looked at British Columbia's ferry system and had conversations with its leaders.

"During these difficult economic times, I've said that all options that could potentially balance our budget need to be on the table," Gregoire said in an e-mail. "That includes researching the impact of privatizing our ferry system."

Gregoire has asked a team of national ferry leaders to study the operations of Washington's public ferry system, and to determine if any kind of privatization would be effective in ultimately helping balance the state budget. The effort is led by Darrell Bryan, president and CEO of Clipper Navigation, a private ferry service based in Seattle.

WEARY OF GETTING IN LINE

Like Washington's ferries, BC Ferries, operated by the government from 1960 to 2003, would queue up for funding each legislative session to get money needed to guarantee its survival.

B.C.'s New Democrats, a socialist political party in power before 2001, embarked on a plan to build fast ferries that would operate between Vancouver and Nanaimo. Their goal was both to satisfy a constituency by improving service, and to please the province's shipbuilders.

BC Ferries spent around $460 million on the three fast ferries. Following endless engine problems, the system ended up selling them for a paltry $19 million.

The public outcry resulted in the ouster of the New Democrats. The more business-minded B.C. Liberals took charge with a political mandate to plot a new course for the ferry system.

Under what was known as the Coastal Ferry Act, the British Columbia legislative assembly established a ferry authority that would appoint a board of directors "selected for their business acumen and not their political connections," said Mark Stefanson, BC Ferries' vice president of public affairs. Its stock would remain entirely in the hands of the province. The entity would formally be called British Columbia Ferry Services Inc.

It also formed a government commission as a watchdog to monitor the company. It created price increase caps on the routes and required service levels be maintained.

Because at least 22 of the system's 25 routes fail to recoup the cost it takes to run them, the government provides a subsidy. The money the system does make — mostly on runs between Vancouver and Nanaimo and Vancouver and Victoria — is used to float bonds to improve infrastructure and buy boats.

CUTTING EXPENSES

Wages for workers were also cut during the transition.

Clipper President Bryan remembers the BC Ferries' transition well. Its CEO, American David Hahn, was out to "get government out of the ferry business." And when it came time to cut costs, he said Hahn took on the BC Ferries & Marine Workers' Union, providing local media with their salaries. Ferry workers, who went on strike, eventually went back to work following binding arbitration.

Administrative expenses were also cut, falling from about 14 percent of the organization's total expenses in 2003 to lower than 8 percent in 2004 following the partial privatization. Seventy-seven positions were eliminated in that time, according to BC Ferries.

The new model has brought some tug-of-wars between the legislative assembly and the company. This year, lawmakers in Victoria passed a bill that requires the company to comply with freedom of information requests and puts a cap on executive pay.

Those in charge make "thick coin," said a bread-truck driver riding the ferry along the Sunshine Coast earlier this month.

The top five executives at BC Ferries make about $3 million a year — a sum officials say is necessary to attract and keep top talent but that angers those who compare the wage to what other government administrators make.

The top five Washington State Ferries administrators make about $634,000. And David Moseley, ferries chief, made almost $30,000 less than one of his employees did in 2009.

One of the original goals of the system was to have private operators emerge that would take over routes, eventually reducing the ferry company to something along the lines of an airport authority, said Andrew MacLeod, legislative bureau chief for The Tyee, a British Columbian website that covers BC Ferries.

That hasn't happened, he said.

"As they've tried to contract out routes, nobody's been able to compete on price," McLeod said.

The BC system, with its subsidies, brought in $549 million in revenues in 2009 for about $46 million in profit. That money goes right back into the system, officials said.

And since 2003, BC Ferries have been aggressively overhauling its fleet, with seven new safer, more comfortable and fuel-efficient vessels. Most B.C. boats include a children's play area, gift shop and at least one cafe. Food and catering sales of almost $80 million a year make the system the fifth-largest restaurant in the province, Stefanson said.

An offshoot business called BC Ferries Vacations, situated in downtown Vancouver and started this year, bundles getaway packages aimed at bringing in tourism dollars for the system and the communities they serve.

"There's no question that BC Ferries are in much better shape than we were 10 years ago," Stefanson said.

‘ITS OUR ROAD'

One difference between Washington's and B.C.'s ferries is the level of reliance on each of them. The approximately 740,000 people who live on Vancouver Island have no other way to get to the mainland by car or walking. In Washington, only the approximately 30,000 people who live on Vashon and in the San Juan islands are entirely dependent on the system.

BC Ferries cover a lot more water — about 1,000 nautical miles more when the routes are added up — and the boats that travel the lengthy northern routes between Prince Rupert and the Queen Charlotte Islands are more like cruise ships.

Commuters on BC ferries have their gripes. Bruce Jefferson, a music therapist who commutes to the Sunshine Coast from Vancouver, said traveling the route has become more expensive and the departures and arrival times less reliable. He also doesn't like that the system doesn't factor in the size of a vehicle in its prices.

"It's the same price to have a Smart car as it is to have a Hummer," he said.

But province-wide, there is a sense that the ferries are simply an extension of the highways.

"It's our road," said Glenn Johnson of the inland city of Kamloops, who with his wife, Rosalee, was taking a motorcycle trek on Vancouver Island in mid-July. "This is just the same as paving a road at home."

Fares remain the primary complaint. Passenger tickets run between $5 and $15 on most routes; vehicles cost $15 to $50 per trip. The more costly the run is to operate, the more its fares have gone up since partial privatization, MacLeod said.

But it's hard to say that government by itself would be able to curb such costs any better.

"No doubt the fares have been going up," said Derek Finall, a retired lawyer who lives in North Saanich near Victoria. "But I think it's probably reflective of costs generally."

GOING PRIVATE

Whether a system is public or private, both have to meet a bottom line by balancing a budget, said Dan Jacoby, a professor of economics and labor at the University of Washington's Bothell campus.

Pull the rug out on government subsidies, and the money has to be replaced — likely by higher fares.

Rep. Larry Seaquist, D-Gig Harbor, sees advantages to some smaller privatization measures like the ones BC Ferries implemented: bolstered marketing, for instance. He and his wife, Carla, booked a hotel on board a BC Ferries' sailing from Vancouver to Victoria.

He also does not believe the state belongs in the business of designing and supervising the construction of new ferries. He cites the $75 million Chetzemoka, the state's newest 64-car ferry, as "pound for pound the most expensive ferry we've ever built."

Seaquist believes the state should stick to an industry standard of about $500,000 per car — meaning, in his estimation, that the Chetzemoka should've cost no more than $32 million.

BC Ferries built its three 370-car "Super C" vessels in Germany for a total of $517 million, or about $465,000 a car spot.

But Seaquist believes government money will always have to subsidize runs. The state entered ferry service in 1951 to stabilize a private service that some complained had become a monopoly, hiking fares and diminishing service, according to historylink.org.

Only three ferry routes in the Washington state system came close to breaking even in 2009: Seattle-Bainbridge Island, which recovered about 92 percent of its costs; Edmonds-Kingston, which recovered 94 percent; and Clinton-Mukilteo, which recovered 85 percent. The whole system recovers about 65 percent, with the Port Townsend-Coupeville and Pt. Defiance-Tahlequah runs each recovering about 40 percent.

By contrast, three of the routes in BC's ferry system are profitable.

‘CRACKING THE NUT' FOR LONG-TERM STABILITY

The bottom line: British Columbia taxpayers did not save money when the system partially privatized.

But that didn't make the move a failure, officials say. Instead, it made it a more robust, long term-minded organization by taking the politics out of the decision-making and putting the customers' priorities first.

"What it comes down to is that some decisions are too hard for politicians to make," said Stefanson, the BC Ferries vice president. "It was time to divorce from politics and let business people make business decisions."

One of the most critical of those moves was acknowledging that keeping shipbuilding jobs in B.C. was a luxury the organization sometimes could not afford, Stefanson said.

Perhaps the greatest benefit to the British Columbian system since partially privatizing has been the overhaul of an aging fleet.

"They seem to have cracked the nut on revitalizing their fleet," said Walt Elliott, chairman of the Kingston ferry advisory committee and co-chairman of the overall system's ferry advisory executive council, which supports a look at what benefits could come from some kind of privatization.

Using its profits to float bonds, the company has since bought many of its vessels from a shipyard in Germany, spending $1 billion buying seven new vessels and extending the life of three others in the past three years. BC Ferries says it saved about $80 million by going abroad for the vessels.

The average age of the system's boats, previously in the 30s, is now plummeting into the 20s. Washington State Ferries' 20 boats, by comparison, have an average age of 36, according to a University of Washington graduate research project conducted by Michael Dean Bennion that compared the operational performances of 24 ferry systems worldwide.

Rep. Christine Rolfes, D-Bainbridge Island, has been an advocate for removing the clause in state law that mandates new ferries be built in Washington state — similar to the successful effort to do so in B.C. in 2004.

But the bill died in committee this year.

"The majority of legislators said the (in-state shipbuilding) jobs were worth the lack of the competition," Rolfes said. "My point was, ‘That's great, but let's not raise fares on my community to cover it.'"

‘HARD TO STEER A STEADY COURSE'

Gregoire's commissioned privatization study, on the heels of the announcement that the Legislature will have to cut billions when it meets next session, will be geared at finding efficiencies to save money. Economist Jacoby points out that it could just be a maneuver to bring down a costly component of the ferries: labor expenses.

Gordon Baxter, a consultant who lobbies for Washington State Ferries' unions, said he's not opposed to some kind of privatization. But he wants riders to know what the implications will be: higher costs.

"The closer it gets to being a private operation, the higher the fares will be," he contends.

But Elliott said the idea is still worth exploring as a solution to problems that have plagued Washington State Ferries. Long-term consistency, he said, could provide the greatest benefit, unhinging the system from shifting political winds to focus on long-term sustainability.

"Sometimes I feel our ferry system has too many hands on the tiller," Elliott said, "So it's hard to steer a steady course."